Credit deflation and the reflation cycle to come (part 2)

[DurhamBorn]

3 hours ago, Loki said:

Durham even gets a name check!  I'm smashing the overtime recently to build up my stocks and shares ISA as much as possible before things kick off.  Anything catching your eye at the moment?

As SP has said im watching big oil and mid sized gas.I think they might get cheaper as i think $40 oil is possible,but im getting ladders in place and starting to pick up a few.I dont like putting stocks up like this in case people rush to buy them,but i started to add to SWN South Western Energy friday.I ran a very quick scan using the techniques i used on the rubber band gold miner call and that came up top rubber band stock.The 2nd in the list was Chesapeake Energy.I started to buy that too.Those positions arent like the gold miner positions.I intend to hold them into the back end of the next cycle.I may top slice if they run though.I also bought a very small holding in Encana

I also really like telcos,but im going to start to work on them after xmas.I think the industry will consolidate,the medium sized players in western countries will be bought out/merged and the bigger ones become free cash machines during the next cycle.They might get whacked more in a big sell off,but i think the undervaluation is structural and large.

DYOR etc

[sancho panza]

1 hour ago, Cattle Prod said:

All,

I'd like to draw your attention to the following podcast (or transcript if you prefer):

https://www.macrovoices.com/751-macrovoices-196-mark-gordon-why-the-age-of-oil-abundance-is-about-to-end

This guy has outlined pretty much how I see the oil markets playing out over the next eight to ten years. I outlined my views on scarcity in the very first dosbods post I put up last year, mentioning geological reasons, lack of capex, the Saudi put and coming US production decline. This guy is far more polished though!

 

Dyodd as ever, and I don't necessarily agree with him on timing (I see a selloff in any stock market crash) but the fundamentals are sound. I too think the inflection point is soon, but could be temporarily masked.

 

There is plenty of currently inaccessible oil in 3000+m water, but that will need an engineering breakthrough and high prices. More likely high prices will accelerate the energy transition first -> all to come in the next decade. There will be an all time high in oil prices in the early 20s, probably over $200 (and I'm very encouraged that @DurhamBorn sees similar in his liquidity work). I like when fundamental and technical reasons line up. It will finally destroy the oil industry, and as fun as the work is, I have no problem with that. The smart companies are already shifting their business, and I will invest in them. I'm about to transfer to a Shell Energy broadband deal (best buy on moneysavnigsexpert). Who saw that coming a couple of years ago?

 

I recommend registering to access the supporting slidepacks. They don't spam at all, and the slides are good. Teaser attached. 

 

Caveat: As I said this guy has articulated my views, so there is confirmation bias here, for sure. Dyodd, and let me know what you think.

 

Thanks for psoting.That presentation is superb.The slides for download have some really informative stuff as well,typified by that XOP slide above.It really is incredible where oil shares are with the S&P at 3200.................................positively incredible.

Decl-been going long oil since August.This slideshow jsut confirms where I was going.However...

 

 

Ref the bit in bold CP,as you know I've been studying June 08 pre/post and history seems to show that the oils will run off in a smash.The big question is what price they'll be before the smash happens.eg Equinor went from $42 in June 08 to $14 by Decmebr.Currently $18.........BP from £6.20 to £3.85 in the oct......The potential trades that could run off those moves are incredible.And thats without using options.

Weak dollar phase could see oil running $100 ++,alongside copper,rare earth and a host of other commodities.To me DXY has started trending down,copper starting to run up.Time will tell if these are the starts of new trends as oil is staying down.

We'll be looking to move into Tresuries at the appropiate moment but then after the smack,back into the ois/copper/PMs for the following decadee.The big oilies have the cash flows/brains to take out the bloosoming plays in the solar/renewable space.

Thats my game plan anyway.

I've registered for teh site , they look to have some interesting stuff besdies this on there...

 

[DurhamBorn]

2 hours ago, MrXxxx said:

Ever wondered what they will do with all that student accommodation that they have/are building but won't be able to fill?...some students will go to uni, stay in the halls/uni accommodation, and stay there for the rest of their working lives.

It will be interesting to see.Likely have to re-develop some.We might attract a lot of foreign students though yet.Durham is rammed with Chinese and Asian.I have a friend who works for a bank there and he says the amounts wired over to the students from family is nuts.

One of the big disasters of recent years is letting below average students think they can have an easy work life by getting a degree.The anger from the young in lots of ways is due to that.Tax credits means they havent really seen hardship,but as they leave uni,their parents lose the benefits and they cant get a decent job.

[Loki]

25 minutes ago, DurhamBorn said:

As SP has said im watching big oil and mid sized gas.I think they might get cheaper as i think $40 oil is possible,but im getting ladders in place and starting to pick up a few.I dont like putting stocks up like this in case people rush to buy them,but i started to add to SWN South Western Energy friday.I ran a very quick scan using the techniques i used on the rubber band gold miner call and that came up top rubber band stock.The 2nd in the list was Chesapeake Energy.I started to buy that too.Those positions arent like the gold miner positions.I intend to hold them into the back end of the next cycle.I may top slice if they run though.I also bought a very small holding in Encana

I also really like telcos,but im going to start to work on them after xmas.I think the industry will consolidate,the medium sized players in western countries will be bought out/merged and the bigger ones become free cash machines during the next cycle.They might get whacked more in a big sell off,but i think the undervaluation is structural and large.

DYOR etc

Thank you mate

[sancho panza]

16 minutes ago, DurhamBorn said:

As SP has said im watching big oil and mid sized gas.I think they might get cheaper as i think $40 oil is possible,but im getting ladders in place and starting to pick up a few.I dont like putting stocks up like this in case people rush to buy them,but i started to add to SWN South Western Energy friday.I ran a very quick scan using the techniques i used on the rubber band gold miner call and that came up top rubber band stock.The 2nd in the list was Chesapeake Energy.I started to buy that too.Those positions arent like the gold miner positions.I intend to hold them into the back end of the next cycle.I may top slice if they run though.I also bought a very small holding in Encana

I also really like telcos,but im going to start to work on them after xmas.I think the industry will consolidate,the medium sized players in western countries will be bought out/merged and the bigger ones become free cash machines during the next cycle.They might get whacked more in a big sell off,but i think the undervaluation is structural and large.

DYOR etc

I started running those trhoguh ye olde coma scale and a acouple of things struck me

1 went back and looked at impala plats ,first mentioend on here a year or so back when it was $1.50,currently near $10....

2 When I've got tiem I intedn to construct a couple of high risk portfolios based on low coma scale scores in sectors like oil services.The returns on the high risk plays could be incredible at the right time

3 Chesapeak is a classic high risk high reward play on that basis.If it' s still in business it could rocket when commodities tunrn.SCS 52145-17-Balance sheet is in a terrible state and I never normally trade any stock that scores a 1.

SWN 52245-18

Havent delved too much into their stories but Ches has a terrible name.

 

 

AS part of that Cattleprod slideshow,the guy talks about the need for rigs if oil prices rise.Some of the oil services shares are dirt cheap.

More cautious on the Telcos than you.Great potential long term but some debt laden balance sheets could get cheaper yet.Id rather be in big oil at the mo than VOD but on the other side,the telcos offer amazxing potential

[MrXxxx]

9 hours ago, DurhamBorn said:

We might attract a lot of foreign students though yet.Durham is rammed with Chinese and Asian.I have a friend who works for a bank there and he says the amounts wired over to the students from family is nuts

But what happens when the Chinese economic miracle dries up (as it will)?...in addition, the Chinese universities have had a massive build and recruitment (of Western lecturers) drive in the last 5 years...finally is the devaluation of the UK education system; we used to be the `Gold standard`

With all these factors combined, those Asians that can afford it will go to US universities, those that can't will stay at home.

9 hours ago, DurhamBorn said:

One of the big disasters of recent years is letting below average students think they can have an easy work life by getting a degree.The anger from the young in lots of ways is due to that.Tax credits means they havent really seen hardship,but as they leave uni,their parents lose the benefits and they cant get a decent job

Agree 100% but do they have a right to be angry?...education now is a product like anything else, and if the salesman (uni VC) who is on a massive commission (in this case salary) promises `utopia` should you believe everything they say?...students have become `lazy thinkers` (due to too much passive learning), and as a result have little if any critical thinking skills.

[DurhamBorn]

9 hours ago, sancho panza said:

I started running those trhoguh ye olde coma scale and a acouple of things struck me

1 went back and looked at impala plats ,first mentioend on here a year or so back when it was $1.50,currently near $10....

2 When I've got tiem I intedn to construct a couple of high risk portfolios based on low coma scale scores in sectors like oil services.The returns on the high risk plays could be incredible at the right time

3 Chesapeak is a classic high risk high reward play on that basis.If it' s still in business it could rocket when commodities tunrn.SCS 52145-17-Balance sheet is in a terrible state and I never normally trade any stock that scores a 1.

SWN 52245-18

Havent delved too much into their stories but Ches has a terrible name.

 

 

AS part of that Cattleprod slideshow,the guy talks about the need for rigs if oil prices rise.Some of the oil services shares are dirt cheap.

More cautious on the Telcos than you.Great potential long term but some debt laden balance sheets could get cheaper yet.Id rather be in big oil at the mo than VOD but on the other side,the telcos offer amazxing potential

Debt is a problem on the telcos,but in a way its a blessing because it will drive consolidation i think,maybe equity driven this time,a bit like big tobacco did.I agree there might be better entry points,but im going to add to VOD and BT in the new year with a few other players.Telefonica and Telenor the likely first ones.

Oil is going to be the easiest way for the ordinary investor to protect themselves from the reflation affects.Its a classic contrarian play now.Everyone thinks it has no future,just at the time the price is falling due to the world economy slowing.The beauty is the sector will offer things for older investors like myself who arent chasing big wins now,im chasing inflation +1%+ and younger investors maybe hoping to increase their capital a lot in the more risky plays.Certain to be some 10x ones in the mix.A mix of maybe 5 of the big players plus a few of the smaller gas players could prove very nice.They should become free cash machine's.

 

 

[DurhamBorn]

9 hours ago, Cattle Prod said:

Imagine buying at those prices? The buying opportunity of a lifetime is coming up, imho, and I am trying to build as much capital as I can now to deploy in the selloff. If I manage to deploy it, I will do nothing other than some rebalancing on my portfolio till 2027 or so.

The big problem with that is what I've bolded - the oilies have already had a bear market. I don't think I can go entirely to cash and risk getting left behind. It's torturing me! I too study the events of June 08, but it won't be exactly like that again. How much could the oilies sell off from here? Best scenario is that they run up from now till the big kahuna, then I'll be much more assured that they will sell off again. But who can time that? I'll probably go with what I did with Tullow. Buy in single digit P/E ratios. You could have got 3s and 4s in 2008, that is a company adding 25% of its valuation in cash every year. Doesn't take long t double your share price in that scenario once everyone has calmed down. One thing I know is that certain oil and gas companies will still be making money at $30 a barrel, never mind 40! SP has mentioned some of them above.

Macrovoices is very good, with some great guests. I listen most weeks. Erik has been too cautious on gold, but is a long term bull, and has been directionally wrong on the dollar. I too think it has turned, and I think the reason is the "not QE" fed repo stuff easing the dollar liquidity problem. Jeff Sneider is a genius in this regard, he has predicted all 4 of the last dollar crunches. He's hard to understand/follow, but if you have time go into some of his Eurodollar university stuff. They also have Charlie McElligott on regularly, who consistently predicts turns in the S&P 500, with nothing more than a glorified spreadsheet. Its a free way to access his institutional letters. They offer great subs deals too, the most recent one for Hedgeye, kicking myself I didn't take it. They are worth watching too: they have just gone long oil too.

Note on Chesapeake - I know some of the geos there, excellent people, but they have a major legacy investment problem. they went big into shale gas. The problem with that is the shale oil plays will now start spewing out ever increasing amounts of gas from the oil (called associated gas, a natural phenomenon in maturing fields 'gassing out'. The Eagle Ford is now pretty much a gas play). So huge internal competition. I too would worry about their balance sheet, and I hope they survive.

I think the gas inflection point will come on the demand side. I was have a rant at my Mrs about this, to answer some crap she was getting from her friends about my line of work. I'll see if I can find it and post it.

My road map work going back 2 years showed me PE ratios were likely to hit 5 to 8 in many areas during a crash (lower for commod companies).A lot of companies hit those levels while the broader market stayed up.It was a head fake and it threw me off a bit.Luckily i decided to do what i always do and ladder in anyway,and thats proved right so far,most of the cyclicals have really bounced hard,many up 20% or 30% including divis.It could be the oil sector is doing the same thing.It would be so much easier if oil would just spike down into the low $40s for a bit though.

[Harley]

9 minutes ago, DurhamBorn said:

.It would be so much easier if oil would just spike down into the low $40s for a bit though.

I'll be a big buyer of the oillies in the New Year.  Buy and hold without regard to any intermediate lows, which I could always trade for consolidation.  I have a heating oil tank and the price of heating oil has only ever gone up each year. It would be very nice to have enough divs coming in to pay my heating oil bill!  BTW, the WTI chart seems to have been in an established up trend for some time now.

[Loki]

13 minutes ago, Harley said:

I'll be a big buyer of the oillies in the New Year.  Buy and hold without regard to any intermediate lows, which I could always trade for consolidation.  I have a heating oil tank and the price of heating oil has only ever gone up each year. It would be very nice to have enough divs coming in to pay my heating oil bill!  BTW, the WTI chart seems to have been in an established up trend for some time now.

Brainlet question incoming

Do you mean individual shares in oil co's, an ETF of different companies, or something like a Brent oil fund?

I am guessing the key point about owning company stocks will be the dividends in a boom, as well as the increases in price?

[Harley]

39 minutes ago, Loki said:

Brainlet question incoming

Do you mean individual shares in oil co's, an ETF of different companies, or something like a Brent oil fund?

I am guessing the key point about owning company stocks will be the dividends in a boom, as well as the increases in price?

Individual shares, assuming I can buy them.  Dividends with low risk of long term capital loss would be my objective, although buyer beware given the comments upthread.  Into my SIPP rather than ISA to avoid withholding taxes, at least for the US ones.  Any oil commodity puchases would be as a trade only.  Rinse and repeat for international stocks in other target sectors.

To execute, I need to document my thoughts on target sectors and use common international ETFs to pick say the top 10 players in each sub sector/industry, then review their financials in Morningstar using my established criteria, including ensuring sufficient dividends (at or above industry average).  Also cross check the list against comments on this thread.  Then consider holding some more growth versus dividend shares depending how this initial list looks.  I'll also take a look at the rest of the energy sector, including renewables.  Then create a watch list with target portfolio allocations for each share.  Then buy small initial positions and sit and wait the rest of 2020 for buy signals (laddering in), while monitoring performance and assumption validity.

Usual stuff!

[Talking Monkey]

13 hours ago, sancho panza said:

Thanks for psoting.That presentation is superb.The slides for download have some really informative stuff as well,typified by that XOP slide above.It really is incredible where oil shares are with the S&P at 3200.................................positively incredible.

Decl-been going long oil since August.This slideshow jsut confirms where I was going.However...

 

 

Ref the bit in bold CP,as you know I've been studying June 08 pre/post and history seems to show that the oils will run off in a smash.The big question is what price they'll be before the smash happens.eg Equinor went from $42 in June 08 to $14 by Decmebr.Currently $18.........BP from £6.20 to £3.85 in the oct......The potential trades that could run off those moves are incredible.And thats without using options.

Weak dollar phase could see oil running $100 ++,alongside copper,rare earth and a host of other commodities.To me DXY has started trending down,copper starting to run up.Time will tell if these are the starts of new trends as oil is staying down.

We'll be looking to move into Tresuries at the appropiate moment but then after the smack,back into the ois/copper/PMs for the following decadee.The big oilies have the cash flows/brains to take out the bloosoming plays in the solar/renewable space.

Thats my game plan anyway.

I've registered for teh site , they look to have some interesting stuff besdies this on there...

 

Interesting thoughts there SP on oil running $100+ as the dollar weakens, could the economy handle such a price surely things would deteriorate very quickly as it got into the 80s and 90 dollar range

[Democorruptcy]

16 hours ago, MrXxxx said:

Ever wondered what they will do with all that student accommodation that they have/are building but won't be able to fill?...some students will go to uni, stay in the halls/uni accommodation, and stay there for the rest of their working lives.

I've always thought a lot of pensioners will finish up in surplus student accommodation. The skint ones for sure but I'm also expecting some sort of governbankment scheme to incentivise some of them to free up large houses they don't need. It can also be sold as helping social care, less people on their own and grouping them together should reduce costs.

[Loki]

4 minutes ago, Democorruptcy said:

I've always thought a lot of pensioners will finish up in surplus student accommodation. The skint ones for sure but I'm also expecting some sort of governbankment scheme to incentivise some of them to free up large houses they don't need. It can also be sold as helping social care, less people on their own and grouping them together should reduce costs.

With luck that will push the McCarthy mob out of business too.  Or at least give them cause to sort their prices out.

[DurhamBorn]

1 hour ago, Talking Monkey said:

Interesting thoughts there SP on oil running $100+ as the dollar weakens, could the economy handle such a price surely things would deteriorate very quickly as it got into the 80s and 90 dollar range

Oil will likely be $200 by 2027/28,maybe even $300+.That will probably force the hand of hydrogen to move ahead especially in commercial vehicles.The economy wont handle the price very well,but the money forcing the price up wont care.

[Democorruptcy]

1 hour ago, Loki said:

With luck that will push the McCarthy mob out of business too.  Or at least give them cause to sort their prices out.

Funnily enough after I'd posted I went and checked the MCS share price. It's already well down since early 2016. I reckon they must rake in a lot of taxpayer's cash through high service charges that people on benefits don't pay themselves. 

[Ashby]

4 hours ago, Harley said:

Individual shares, assuming I can buy them.  Dividends with low risk of long term capital loss would be my objective, although buyer beware given the comments upthread.  Into my SIPP rather than ISA to avoid withholding taxes, at least for the US ones.  Any oil commodity puchases would be as a trade only.  Rinse and repeat for international stocks in other target sectors.

To execute, I need to document my thoughts on target sectors and use common international ETFs to pick say the top 10 players in each sub sector/industry, then review their financials in Morningstar using my established criteria, including ensuring sufficient dividends (at or above industry average).  Also cross check the list against comments on this thread.  Then consider holding some more growth versus dividend shares depending how this initial list looks.  I'll also take a look at the rest of the energy sector, including renewables.  Then create a watch list with target portfolio allocations for each share.  Then buy small initial positions and sit and wait the rest of 2020 for buy signals (laddering in), while monitoring performance and assumption validity.

Usual stuff!

This is interesting, thanks.

I’m considering selling some bullionvault silver to top up my isa allowance and buy gdxj as BV is not in tax wrapper.  I’m most concerned about liquidity of funds, that it might “do a Woodford”.  Do you largely recommend buying the largest constituent shares instead(barrick, newmont, polymetal) etc because of liquidity or cost or is it solely down to dividends?  Cheaper to hold shares, but gdxj is basically sound. Hmm, whether to move now before a rally or just wait till the end of the tax year.

also, what do you all think about sprott metal holdings?  Not seen it mentioned much here. Seems to be a good way to hold silver&gold metal in an isa. Again my concern would be liquidity.

[Democorruptcy]

30 minutes ago, Ashby said:

This is interesting, thanks.

I’m considering selling some bullionvault silver to top up my isa allowance and buy gdxj as BV is not in tax wrapper.  I’m most concerned about liquidity of funds, that it might “do a Woodford”.  Do you largely recommend buying the largest constituent shares instead(barrick, newmont, polymetal) etc because of liquidity or cost or is it solely down to dividends?  Cheaper to hold shares, but gdxj is basically sound. Hmm, whether to move now before a rally or just wait till the end of the tax year.

also, what do you all think about sprott metal holdings?  Not seen it mentioned much here. Seems to be a good way to hold silver&gold metal in an isa. Again my concern would be liquidity.

This is SIPP not ISA. I only mention it because you have already mentioned Bullionvault.

SIPPs: How to put gold into your pension using BullionVault

or Royal Mint

 

[Castlevania]

48 minutes ago, Democorruptcy said:

Funnily enough after I'd posted I went and checked the MCS share price. It's already well down since early 2016. I reckon they must rake in a lot of taxpayer's cash through high service charges that people on benefits don't pay themselves. 

You can’t get Help to Buy on a retirement home. 

[Castlevania]

How much are US withholding taxes? 

All the US companies I’ve previously purchased didn’t pay dividends. Clearly it could have quite a big impact if buying anything for income.

[Democorruptcy]

5 minutes ago, Castlevania said:

You can’t get Help to Buy on a retirement home. 

Where did I mention Help to Buy?

Quote

I reckon they must rake in a lot of taxpayer's cash through high service charges that people on benefits don't pay themselves. 

 

[DurhamBorn]

 

7 minutes ago, Castlevania said:

How much are US withholding taxes? 

All the US companies I’ve previously purchased didn’t pay dividends. Clearly it could have quite a big impact if buying anything for income.

UK shareholders in US companies will receive their dividends net of 15 per cent tax if they hold their stock within an Isa or outside a tax wrapper. If their holding is within a Sipp, then they are treated like a conventional pension fund and receive their dividends gross.

 

Country	Withholding rate (%)	Refund rate (%)	Time limit (yrs)	Upfront relief	Online claims
Belgium	30	20	5
Canada	25	10	2	Yes
Denmark	27	12	3		Yes
France	30	15	2
Germany	26	11.4	4
Ireland	20	20	5
Netherlands*	15	15	5		Yes
Norway	25	10	5
Switzerland	35	20	3
US	30	15		Yes

[Talking Monkey]

2 hours ago, DurhamBorn said:

Oil will likely be $200 by 2027/28,maybe even $300+.That will probably force the hand of hydrogen to move ahead especially in commercial vehicles.The economy wont handle the price very well,but the money forcing the price up wont care.

Apologies DB, I wasn't clear, what I meant was if oil increases much further in the next few months won't that  bring forward the next expected recession, so I would expect oil price upside in the next say 6 months to be limited, bar any big supply shocks. Unless I misunderstood SP was mentioning he expects oil to increase in the coming months towards $100 as the dollar weakens, I suppose I was wondering could the economy in 2019/20 take that at the tail end of this cycle

Totally agree with the various discussion lines on this thread that point to oil heading to $200-300 by 2027/28

[JMD]

19 hours ago, Cattle Prod said:

The macrovoices guys (I recommend the podcast, it's advanced but accessible, and free!) are wrong about one thing - the next wave of supply will not come from the Arctic. Shell threw billions at it and nearly screwed up, it simply will not fly. 

There is plenty of currently inaccessible oil in 3000+m water, but that will need an engineering breakthrough and high prices. More likely high prices will accelerate the energy transition first -> all to come in the next decade. There will be an all time high in oil prices in the early 20s, probably over $200. I like when fundamental and technical reasons line up. It will finally destroy the oil industry. The smart companies are already shifting their business, and I will invest in them. I'm about to transfer to a Shell Energy broadband deal (best buy on moneysavnigsexpert). Who saw that coming a couple of years ago?

CP, thanks very much for the excellent insights. Very interesting to me as I am positioning my portfolio into oil+gas companies as well as other commodities/PM's etc. 

To help clarify things for me - in terms of positioning for the next 10 year cycle - can I ask a couple of follow up questions...

When you refer to shifting away from oil - in terms of the big oilies (to keep my question simple) - I guess you mean favouring a company like Shell which I think I recall you having mentioned before as having large exploitable gas fields. If so, are you able to comment on Total/Exxon as I don't know how these might fit, are they mainly oil? Also, in terms of diversifying away from oil, (apart from broadband!?... I agree a bit weird, but I would guess mostly to do with marketing/PR/spin?) will they just mainly continue with buying-up/developing renewable type companies, or do you see other 'good fits' for these energy companies? 

Other question is perhaps more difficult to comment on. You say Arctic oil reserves will be too difficult and instead deep water oil reserves will be the next commercially exploitable supply. In your opinion which energy companies own the most lucrative deep-water drilling rights? 

 

(apologies for long question, but as I am not a trader with skills, I am instead trying to understand more about this industry in order to position my portfolio for the long term)

[Errol]

So silly that you can't buy oil related ETFs like XES because of the KID stuff.

Does XOP have a KID?